Ferrari Cuts Production: Slump or Strength?

Ferrari just announced it's capping production this year. The stated reason: status protection.

"The decision we have made to sell fewer cars this year despite stronger sales is due to protect brand's exclusivity," Ferrari chairman Luca Cordero Montezemolo told reporters.

Ferrari will make only 7,000 cars this year, compared to 7,318 last year, he said.

Capping production will no doubt ease the fears of many Ferrari afficianados and owners who have worried that the company's ever-rising sales numbers may dilute the brand. In 1993, Montezemelo vowed that "Ferrari will never, never build more than 3,500 cars a year." It went on to make more than twice that amount and a new factory expansion allows them to build even more.

But is status the only reason?

A Ferrari spokesperson stressed that "demand is great across the lines" and that the company's new LA Ferrari is already sold out. But Ferrari dealers and industry executives say there may be a more practical reason for cutting production. Demand for the prancing horse, they say, is simply weaker.

While sales in Japan and the U.S. have been strong (up 19 percent in the quarter for U.S. sales), demand in Asia and Europe is sagging. The slowing economy in China is a big reason, but Europe's troubles have been the biggest drag on Ferrari sales.

Sales for Ferrari and Maserati plunged 40 percent in the first quarter in Europe, according to the European Automobile Manufacturer's Association. And industry experts say sales in China are down year-over-year.

"Personally, I believe they're doing this because of a reduction in demand," said Marcel Massini, the Geneva-based Ferrari historian and founder of Massini AG. "They can claim it's for the brand. But I think they're not selling the number of cars they intended to sell."

Massini said Europe's troubles aren't just due to the weaker economy. The wealthy in southern Europe, he said, have become chief targets for tax collectors. And people driving Ferraris are often stopped by government officials.

"Last year they only sold 300 Ferraris in Italy," he said. "That's a shame. Everyone is being marked as a criminal."